If only Andy Beckett understood the economic statistic he's trying to use

In one of Paul Krugman’s exceptional essays we are informed of a great, grand even, truth:

The question here is not why Lind got these numbers wrong. It takes considerable experience to know where to look and what to worry about in economic statistics, and one should not expect someone who does not work in the field to be able to get it right without some guidance. The question is, instead, why Mr. Lind felt that it was a good idea to make sweeping pronouncements about this subject, when he clearly was unwilling to invest time and energy in actually understanding it.

Economic statistics can indeed tell us interesting things. But we’ve got to understand the economic statistic to understand what is being told to us. At which point, Mr. Beckett:

What might life be like in Britain if most people’s wages were more generous? One answer is more like life in many other rich countries. According to the United Nations, the share of our gross domestic product that goes to employees is lower than in France, Germany, Italy, Australia, South Korea, Canada, the US and half a dozen other, often more successful, capitalist nations. This “labour share” has fallen in Britain in most years since the late 1970s, when the great counterattack began against unions and decent pay for the many. The absence of this broad-brush but telling indicator from everyday debate in Britain is a sign of how much our politics is shaped by essentially rightwing assumptions.

Well, no, not really. From his own source we can see that the Swedish labour share is lower than that of the UK. In fact, the labour share in all of those supposedly highly desirable Nordics is lower. Which is a bit of a blow for those wanting to use the labour share of the economy as an advertisement for something like the Nordic social democracy of course.

The underlying problem here - and it’s an entirely common one on the British left - is failing to understand what the labour share actually is. GDP is, by definition, all production, or all incomes, or all consumption. Everything that is produced is consumed, incomes are the link between the two. So, if we measure all incomes we can see how much of the economy flows to capital, labour and so on. That’s fine.

But in detail we need to allocate across four different sections. The capital share, yes. The labour share, yes. Then there’s “mixed income”. Here the problem is the self-employed and so on. We’re never really sure how much of the independent workman’s income is from his labour and how much from his capital. So, we count it separately. The UN numbers being used here mix those two, the labour share and mixed income, an error which obscures rather than illuminates.

The fourth is “taxes upon consumption and subsidies to production”. This is a vital part of making the calculation add up to 100% of GDP. This is also what makes the capital share not, repeat not, the inverse of the labour share. If we increase the VAT take - by, say, putting VAT on food as at least one of the Nordics does - then we will likely reduce the labour share (it’s difficult to see how that would affect the capital share). If we reduced the feed in tariff on electricity from solar panels we would - likely - increase the labour share.

A large part of the decline in the labour share over the decades has been in the rise in this portion of national income as measured by, umm, income. The capital share is, in fact, about and around the post-war average - that late 70s decline was the abnormality, not the other decades. VAT is double and more the rate it used to be for example and the New Green Deal or whatever it’s called hasn’t exactly decreased subsidies to production over the years.

Sure, economic statistics tell us all sorts of interesting things. But it is necessary to understand the statistic to be able to extract the useful information. Bit of a pity that not everyone bothers to do that really.

To put this in a more jovial manner. We’d pay good money to watch Mr. Beckett explain to Polly Toynbee why he insists upon using a number which disproves her decades long insistence that “We must be more like Sweden.” We might even try to sell tickets to watch that, ghastly neoliberals that we are.